New guidance on disposable earnings: What your Payroll people need to know

With the definition of earnings changing from one law to the next, it’s a relief to know that new information on the Consumer Credit Protection Act (CCPA) provides a few answers for your Payroll staff.  

Recently updated guidance on the federal wage garnishment law will help you ensure Payroll’s not withholding too much from an employee’s wages.

Added to the list

Here’s what your Payroll people need to know:

In the revised Fact Sheet #30, the Dept. of Labor (DOL) expanded its list of what parts of an employee’s paycheck are subject to garnishment.

Lump sum payments: The fact sheet now states lump sum payments may be earnings under the CCPA. That’s helpful when it comes to child support orders, for example.

Under the federal law, the limit for child support is 50%, or sometimes 60%, of disposable earnings.

Many states have similar laws.

But any employer who has received an order from a state with a higher limit may have wondered: Do the limits in the federal law apply to lump sum payments? According to the fact sheet, the answer would be “yes.”

That’s important to know because employers must withhold whichever is less: the federal or state amount.

Tips: The DOL guidance also makes clear that cash wages paid directly by the employer and the amount of the tip credit claimed by the employer are earnings under the CCPA.

But what if tips received exceed either the tip credit or the wages paid directly by the employer? Those amounts aren’t earnings for the purposes of the CCPA.

Assessing types of payments

Now’s a good time to determine if you’re paying employees any of the other types of compensation defined as earnings under the CCPA.

Otherwise, your disposable earnings calculations and your garnishment amounts may be incorrect.

Earnings include wages, salaries, commissions and bonuses. There’s also other compensation – look for certain payments from pension, retirement or employer-based disability programs.